By: Steve Smith
Some companies that posted stellar earnings reports, saw their shares tumble during October’s broad market sell-off. This has created an exceptional buying opportunity to get involved in some high growth stocks “on the cheap.”
And if you use call options, rather than buying the underlying shares, you will not only be deploying your capital in a more efficient manner but get the benefit of higher leverage, which could mean bigger gains.
This a pretty unique opportunity, in that over the past few years companies that reported better than expected results were quickly rewarded with a move higher in their stock price.
According to Factset, with nearly 70% of the S&P 500 companies having already reported earnings results, nearly three-quarters have posted numbers beating expectations. And around 50% have either raised or maintained guidance. In the past, numbers like these would have given shares a boost, sometimes an irrationally large one.
But this quarter, the reactions to those “beats” have been met with selling, which is telling us something about investor psychology right now.
Factset data shows over the prior 8 quarters, that the typical post-earnings beat reaction is that the stock in question rises 1% on average that day. During this quarter, the average reaction has been a drop of 1.5%.
I think this presents some great opportunities. Last week I discussed how GrubHub was good buy near $87 per share and is now some $8 higher at $95.
Here are 3 more names that could be scooped up cheap in the wake of unwarranted post earnings declines…
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